Systemic risk shifting in financial networks

Banks face different but potentially correlated risks from outside the financial system. Financial connections can share these risks, they also create means by which shocks be propagated. We examine this tradeoff in context of a new stylized fact we present: German banks are more likely to have when similar risks. develop model that rationalize such behavior. argue patterns socially suboptimal and raise systemic risk, explained risk shifting. Risk shifting motivates correlate their failures with counterparties, even though it creates risk.